Monday, August 31, 2009

As of today, about half of the mortgage brokers in Colorado are no longer allowed to sell loans. We were told over a year ago that we needed to take a class and pass a test, but most of us didn't do it.

Just one more reason we have so many foreclosures!

Don't let your deal fall apart because you find out at the last minute that you're working with an unlicensed mortgage broker.

Following is an email that was sent out today by the Colorado Division of Real Estate, the government agency in charge of mortgage brokers.

****NEWS ALERT****

The Colorado General Assembly passed House Bill 1085 in 2009. This bill became effective August 5th, 2009. House Bill 1085 defines circumstances in which the Director may inactivate a mortgage loan originator license if they have failed to comply with the education and testing requirements.• As a result, the Director inactivated 4,560 licenses on August 31, 2009.• Individuals whose licenses are inactive are prohibited from practicing as a mortgage loan originator or in any other capacity which requires a license.• Individuals who continue to practice with an inactive license are subject to all forms of discipline prescribed in the Mortgage Loan Originator Licensing Act, including permanent revocation and fines.• Direct managers of individuals with inactive licenses are also subject to disciplinary action if they allow such individuals to continue to practice.

Friday, August 28, 2009

We are often asked what the maximum allowable debt-to-income (DTI) ratio is for the various types of loans. Here you go:

• For FHA loans, the maximum allowable DTI is 43% if the loan is manually underwritten and it is unlimited if the loan is underwritten through FHA's online underwriting software. We routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.

• For VA loans, the maximum DTI is 41% if the loan is manually underwritten and it is unlimited if the loan is underwritten through VA's online underwriting software. Again, we routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.

• For conventional (non-government) loans, the maximum allowable DTI is 38% if the loan is manually underwritten and it is unlimited if the loan is underwritten through Fannie Mae's or Freddie Mac's online underwriting software. We routinely get approvals with DTI's in the 55% - 65% range if the borrower has good credit.

We calculate your DTI by adding up all of your new mortgage expenses - principal, interest, property taxes, homeowner's insurance, mortgage insurance, and homeowner's association (HOA) fees. We then add all the monthly expenses that are on your credit report, and divide that total number by your gross monthly income (income before taxes or any other deductions). Example: if your mortgage expenses are $1,000 each month and the total of all the monthly payments that show up on your credit report are $900, then your total expenses are $1,900 a month. If you make $3,800 a month, we divide 1,900 by 3,800 and get your DTI of 50%.

Don't lose out on a deal because your loan is being underwritten manually and the DTI is being restricted. Always use a mortgage broker who uses the online underwriting systems.

Thursday, August 20, 2009

There is much news these days about an extension to the $8,000 first-time homebuyer tax credit. There is also talk that it might be expanded to include second homes and investment properties. PLEASE don't believe it. The tax credit is set to expire on November 30, 2009. Under the current IRS rules, if the closing is after that date, then the buyer does not get the credit.

Congress might extend the credit, but they might not. They might expand it to include second homes and investment properties, but they might not. If there is one piece of advice that we can pass on to anyone, it is this: It is extremely foolish to assume that something will happen in the housing or mortgage industries just because we all want it to happen. Remember stated income loans? 100% financing? Houses that went up in value? Everyone in America loved all of those things and they still went away.

At the moment, it is best to assume that the $8,000 tax credit for first-time homebuyers will end on November 30, 2009. If it doesn't, that's great, but assuming that it will be extended could very easily shatter the trust you have built with your clients, or cost you $8,000.

Monday, August 17, 2009

It's important to make sure your mortgage broker is reviewing the title commitment on all your deals. Many times, there are issues that must be addressed by the seller that could be deal-killers if they are not dealt with correctly. Some examples of things that might show on the title commitment include:

Monday, August 10, 2009

We're seeing a lot of sales contracts with counter-proposals from the seller stating that the seller will only pay for non-recurring closing costs. A non-recurring closing cost is a fee that is only paid once, at the closing. If a fee will need to be paid more than once over the life of the loan, then it is known as a recurring closing cost. In the counter-offers we're seeing, the dollar amount of the closing cost concession in the counter-offer will very often be the same as in the offer, but there can be a big difference in how much money actually gets passed from the seller to the buyer if only non-recurring closing costs are going to be paid by the seller.

As an example, let's assume that the buyer asks that the seller pay $6,000 towards the buyer's closing costs and pre-paids. The seller counters by saying they will agree to pay $6,000, but only towards the buyer's non-recurring closing costs. If the buyer agrees to that, the seller will not have to pay for the following recurring closing costs:

• the first year of homeowner's insurance• the money used to set up the insurance portion of the escrow account• the money used to set up the tax portion of the escrow account• interest from the date of closing until the end of the month

In many cases, the total of these fees is well over a thousand dollars. That's extra money that the buyer will need at closing.

The federal Truth-in-Lending law changed a couple weeks ago. One of the most important parts of the law says that if the Annual Percentage Rate (APR) on the final Truth-in-Lending disclosure differs by more than 0.125% from the APR that was disclosed on the most recent Truth-in-Lending disclosure issued by the lender, then the loan cannot close until 3 days after the lender delivers an updated disclosure showing the correct APR. Ensuring that the APR is correct is the responsibility of the lender. However, there are a couple things that routinely change near the end of a transaction that are the responsibility of the real estate agents. Here's what a real estate agent needs to look out for:

-- Changing the closing date. If you change the closing date, the number of days of pre-paid interest will change and affect the APR.-- Not telling the lender if there is a change in the amount of seller-paid closing costs or the sales price. If there is an amendment to the contract that changes the amount of seller concessions or the sales price, that will affect the APR. You MUST tell the lender about any changes so they can re-disclose the APR.

Remember, if the APR changes by more than 0.125% (either higher or lower), then there is a federally mandated 3-day waiting period before the closing can take place. The way to avoid delays is to send all contract changes to the lender immediately and to resist the temptation to change the closing date during the week before the scheduled closing. If you do those two things, then you can blame all delays on the lender :-)

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